Between 2011 and 2020, losses from global payments fraud more than tripled from under $10 billion to over $32 billion. That already rapid growth was supercharged by the global pandemic, especially in the ecommerce sector, which on its own is expected to cost merchants around the world a staggering $48 billion in fraud losses in 2023. The trend is unlikely to reverse as digital payments continue to become the norm, and novel technologies like BNPL and P2P payments open up even more opportunities for cyberattackers and fraudsters. 

Merchants already face naturally increased fraud exposure as their businesses grow, but the rapid rise in the cost and rate of overall fraud compounds the problem. As a result, modern omnichannel merchants are facing a massive challenge, leaving many looking for ways to wall off their operations from potentially expensive threats like friendly fraud and potentially fatal ones like data breaches. 

Luckily, today’s merchants have a variety of best practices and technologies available to them to help combat fraud of all types. Combating fraud also represents an opportunity for acquirers, who can reduce fraud rates and losses through better merchant education and boost revenue by offering valuable anti-fraud tools as part of more comprehensive services. 


Reducing fraud with better merchant practices

How a merchant operates can have a big impact on the frequency and types of fraud they have to deal with. By following certain best practices around returns, data safety, and shipping, merchants can reduce fraud losses by reducing fraud attempts.

Preventing friendly fraud with better return policies

Friendly fraud is another name for chargeback fraud – an unavoidable reality of doing business, especially online. But, while it can’t be avoided outright, one way merchants can reduce friendly fraud is by improving return and exchange policies to make them more user-friendly. While many cases of chargeback fraud start out malicious from the beginning, there are also cases where customers initiate illegitimate chargebacks because they feel like the merchant was unavailable or unwilling to work with them on issues that have real merit. 

An unhappy customer always represents a higher fraud risk than a happy one, so implementing policies to ensure fewer disgruntled buyers is an ideal way to prevent friendly fraud. First and foremost, that means ensuring return and exchange policies are clearly defined, clearly communicated, and, most importantly, fair. 

Customers who understand policies clearly are less likely to initiate false chargebacks in cases where they don’t qualify for a return. But, equally importantly, just because a customer isn’t necessarily entitled to a return or exchange doesn’t necessarily mean offering one isn’t the right business choice. Empowering front-line support staff to employ discretion and do more for unhappy customers – within reasonable limits – is also a key way to decrease incidences of friendly fraud.  

Locking out data theft with air-tight PCI compliance

There are plenty of good reasons for merchants to ensure they’re fully PCI compliant, not the least of which are hefty non-compliance fines that can reach $100,000 per month in extreme cases. But the primary reason to take PCI compliance seriously is that the Payment Card Industry Data Security Standard (PCI DSS) is designed to ensure customer data is safe from cyberattackers and thieves. When criminals steal customer payment data, it’s used or sold for the purpose of committing credit card fraud. That means anything that keeps customer data safer reduces overall fraud rates and protects merchants, both individually and as a whole. 

Getting compliant can be a daunting task for many merchants because the PCI DSS is complex. A great place to start in all cases is the PCI-DSS Quick Reference Guide, but acquirers should consider keeping PCI experts on staff to provide direct assistance to merchants. Since failure to comply impacts everyone in the payments chain, including ISOs, processors and banks, the extra effort to ensure merchants have the help they need to meet the standard is well worthwhile. 

Stop interception fraud with customer service training

Interception fraud occurs when fraudsters try to redirect packages after an order has been placed to circumvent automated fraud checks. A fraudster will make a purchase with stolen credit card details but use the correct shipping address, helping the transaction pass at least a few common checks performed by automated anti-fraud systems. The fraudster then contacts customer service or, in some cases, the shipping company, and asks to change the address on the order. 

The single best way to prevent interception fraud is to ensure customer service representatives know it exists and are prepared to encounter it. There may be some situations in which a change of shipping address is a legitimate request, but those instances are rare. As a rule, CSRs should be trained to treat such requests with a great deal of suspicion and should require a high level of verification before allowing it. It’s important to remember that fraudsters may have gained access to a customer’s account as well as their credit card information, so just verifying account details is not necessarily a high enough bar. 

Many companies also limit the types of addresses they’ll ship to. Apple, for instance, won’t ship to PO boxes, freight forwarders, or out-of-country addresses. Instructing CSRs to deny shipping changes to these types of addresses can also help reduce interception fraud. 


Fighting fraud with NMI’s full commerce enablement tools

In addition to giving acquirers everything they need to sell payment processing, NMI’s full commerce enablement platform also includes a variety of tools designed to combat fraud. From IRIS CRM’s advanced dispute response system to NMI’s proprietary anti-fraud tools, to the platform’s integration with Kount®, NMI merchants have a clear advantage when it comes to minimizing the losses and impacts of payments fraud. 

IRIS CRM Dispute Responder

IRIS CRM (An NMI company) is the nerve center of NMI full commerce enablement. It includes a chargeback defense tool called Dispute Responder that helps both ISOs and merchants stay on top of new disputes, win more cases, and minimize losses. 

Dispute Responder’s first line of defense is automatic, instant notifications as soon as a new dispute is filed. In addition to “day zero” notifications, the system also follows up on day one and day three if no action has been taken. Once a merchant is ready to file a defense, Dispute Responder provides an easy-to-follow checklist outlining the exact evidence that needs to be submitted based on the card type and reason code. Merchants can then submit everything directly through the system without leaving the CRM. An advanced reporting dashboard allows users to track each dispute while it’s in progress and easily review all historical disputes for lessons learned. 

Dispute Responder also gives ISOs the ability to manage disputes on behalf of merchants, ensuring consistent responses and opening up a potential source of new revenue. By guaranteeing timely notification and making it faster and easier to file a correct defense, Dispute Responder ensures no merchant has to worry about losing a chargeback because they were unable to respond in time or with the right supporting evidence. 

NMI anti-fraud tools

NMI offers value-added anti-fraud tools that help merchants fight fraud by catching and stopping fraudulent card transactions before they can get through. NMI’s proprietary anti-fraud system uses rules-based filters to detect transactions that raise red flags. Filters can be customized based on merchant needs and the system can automatically ban users, IP addresses and card numbers that appear on known fraud lists. When a potentially fraudulent transaction triggers a filter, it can either be declined outright or sent to a queue to be manually reviewed. 

NMI’s value-added fraud protection tools offer benefits to both merchants and acquirers. Merchants gain the ability to protect themselves against fraud and eventual chargebacks, and acquirers gain a valuable new revenue channel that offers real value to new and existing clients. 

Kount® advanced fraud prevention

For merchants looking for the ultimate tool in fraud prevention, NMI also offers Kount advanced fraud prevention as a value-added service. Kount uses artificial intelligence and a global fraud database to take anti-fraud checks to the next level. Kount’s advanced AI compares each new transaction against a database fed by over 30 billion previously reviewed transactions per year. It then instantaneously generates highly accurate risk and safety scores and sends transactions to one of three color-coded buckets: approved, denied, or needs review. 

The unparalleled accuracy Kount offers can have a huge impact on a merchant’s operations. Kount’s main benefit is its ability to catch more fraud than standard checks, minimizing merchant losses. But it also helps ensure fewer false positives – an important factor in boosting customer retention, since one in four customers won’t return to a merchant after having a payment incorrectly declined.

For acquirers, NMI’s Kount integration represents one more high-value service they can offer merchants as part of a comprehensive service package, improving the merchant experience and boosting revenue. 


Help merchants minimize losses and stop fraud in its tracks with IRIS CRM and NMI

The ability to help merchants combat fraud more effectively is an important competitive advantage in the ever-tightening payments space. To find out more about how NMI and IRIS CRM can help your company offer merchants more and unlock new revenue opportunities with value-added anti-fraud tools, schedule a free guided demonstration today.